Annual Report for Fiscal Year Ending December 31, 2025 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon, and should be read in conjunction with, our audited consolidated financial statements and the related notes included in this Report. This Report contains forward-looking statements. See "Forward-Looking Information." In evaluating our business, you should carefully consider the information provided under the caption "Item 3 Key Information - D. Risk Factors" in this Report. We caution you that our businesses and financial performance are subject to substantial risks, changes and uncertainties.

As used in Item 5 section, the term "the Group" refers to Agroz Inc. and Agroz Group., collectively. "Agroz Group" refers solely to Agroz Group Sdn. Bhd., a Malaysian private limited company, our operating subsidiary.

OVERVIEW

We are a vertically integrated agricultural technology company applying technology solutions, innovative business models, processes, and systems to design, build, manage, and operate indoor CEA vertical farms. We also operate CEA vertical farms which produce clean, pesticide free, fresh and nutritious rich vegetables directly to consumers and businesses. Our EduFarm at AEON Alpha Angle was also aimed to educate the public on how our vegetables are grown. Our CEA practices are a combination of various digital technologies, including IoT, data analytics, artificial learning, machine learning, automation, cloud and edge computing, and 5G communications. We use 5G communications primarily to enhance internet connectivity within our CEA practices, which is essential for real-time monitoring and control of our agricultural operations.

Our mission is to improve food safety, food security, and sustainability for society by creating a reliable, accessible food supply through our agricultural technology ("AgTech") products and services. We believe we are revolutionizing and transforming agricultural production through our CEA technology and methods. We believe our technology enables us to grow more food in less space safely without the use of pesticides, herbicides and other dangerous chemicals, while reducing the need for storage and refrigeration. We aim to improve food security and deliver freshness by growing food locally, nearer to where it is consumed, which reduces transportation and therefore lowers the food miles generated and our carbon emissions impact, leading to more environmentally friendly outcomes for food production.

We believe there is vast market potential for the AgTech and CEA vertical farming markets globally and in the Southeast Asian region. Starting with Malaysia, we aim to match the top-grade products we have available to the markets in which they are the most highly demanded.

Principal activities

We primarily derive our revenue from:

Our goal is to create efficient, sustainable, and environmentally controlled vertical farms which maximize crop yield and crop quality and allow for precise management of temperature, humidity, light and nutrients.

We design and/or construct indoor CEA vertical farms for our clients according to their specific needs. This involves planning each CEA vertical farm's layout, designing its infrastructure, building the farm's structural framework, setting up equipment, and implementing the Agroz OS within the farm. The Agroz OS, at its most current stage of development, integrates certain hardware and software solutions detailed below. Through Agroz OS, we aim to improve productivity, boost yield, and improve the quality of produce generated within CEA vertical farms.

Agroz OS is currently comprised of digitally automated hardware systems capable of: (i) managing various environmental conditions within the CEA vertical farms and water quality and volume, (ii) providing irrigation and nutrient fertigation; (iii) providing light to crops; (iv) managing energy use; and (v) collecting data to enable management of temperature and lighting within the farms, as well as nutrient provision, irrigation and fertigation.

As of the date of this Form 6-K, we have implemented in Agroz OS the above digitally automated hardware systems. We have also integrated in Agroz OS software solutions enabling email and communication systems for farm organization. Agroz OS also includes Agroz ERP, a software system that tracks every aspect of the vertical farm's business activities, including: (1) farm input materials (i.e., seeds, nutrients, growth media, packaging, consumables, carbon dioxide); (2) growth of produce at different stages; (3) farm personnel activity; (4) harvest inventory; (5) sales orders, invoices, and deliveries, and (6) accounting records. Agroz ERP is also accessible as a mobile application. These software solutions are supported by Microsoft Azure and Microsoft AI, which solutions are possible pursuant to being Microsoft ISV and Microsoft AI Cloud Partner under the Microsoft Publisher Agreement and Microsoft AI Cloud Partner Program Agreement filed herein as Exhibits 10.5 and 10.6, respectively.

We have integrated an AI agent system into Agroz OS, which system is supported by Microsoft AI and capable of presenting complex agricultural decisions to farm managers and farm owners and autonomously executing such decisions after human approval is received. The AI system's agents can undertake complex multi-step autonomous actions within vertical farms and result in vertical farms which can be independently and automatically operated. Investors should be aware that such AI agent system is distinct from the Agroz Copilot; by contrast, Agroz Copilot is a GenAI application separate from Agroz OS, which enables human farmers to input queries and instructions into an application to receive recommendations for assistance with daily tasks, not a system for autonomous functioning of vertical farms.

Agroz OS additionally includes Intuit QuickBooks to aid in financial reporting and bookkeeping, with such accounting software stored on cloud servers and financial information protected by encryption technology and firewall.

Following the successful design and/or construction of CEA vertical farms, our clients may also receive, at their option, farm operation and management services. The services we offer in this respect include the overseeing of day-to-day CEA vertical farm operations and performing regular maintenance of our clients' CEA vertical farm systems, using all of the intellectual property we have developed, including Agroz OS and the standard operating procedure supporting CEA vertical farm operations. We began generating revenue from the operation and management services for our clients' CEA vertical farms in fiscal year 2024.

Currently, the CEA vertical farms we operate and manage include: (i) a 10,021 square foot indoor vertical farm in Kota Damansara and (ii) a 5,239 square foot educational vertical farm ("EduFarm") at the AEON Mall Alpha Angle, a shopping center in Wangsa Maju, Kuala Lumpur, Malaysia ("AEON Alpha Angle"). The Malaysia Book of Records, a publication of record setting achievements, recognizes the vertical farm we operate and manage at AEON Alpha Angle as the largest indoor vertical farm located inside a shopping mall in Malaysia. Additionally, in June of 2024, the Malaysian government, through the Ministry of Agriculture and Food Security, recognized the EduFarm for meeting Malaysian Good Agricultural Practices ("myGAP.PF") requirements in being pesticide free. MyGAP.PF is a certification scheme recognizing farms which adopt agricultural practices with an environmentally friendly concept, safeguarding the welfare and safety of workers and do not use synthetic pesticides to produce quality, safe and edible products. This certification covers 20 types of vegetables grown in the CEA vertical farms we manage and operate, including green butterhead, red butterhead, green coral, red coral, wild rocket, green kale, and arugula, to name a few.

Through the EduFarm, we also supply fresh produce sold at AEON Alpha Angle and at certain supermarkets operated by AEON Co. (M) Berhad ("AEON").

We sell CEA vertical farms to potential buyers separate from the services that comprise the first and second revenue streams identified in the "Principal activities" subsection above. Our completed CEA vertical farms are fully operational and optimized. Each CEA vertical farm includes Agroz OS. We aim to achieve high-yield crop production and resource management through the CEA vertical farms.

We also generate revenue from sales of fresh produce, which produce consist of (i) produce grown in the leased CEA vertical farms we operate and (ii) produce outsourced from our clients' CEA vertical farms and other suppliers. To date, we have successfully grown 50 different crops and are currently offering 21 varieties of crops for sale. Our key distribution avenue is the direct distribution of fresh produce to Malaysian-based wholesale distributors, and large supermarket brand retailers, such as AEON, and recently we have expanded our distribution to Village Grocer.

RESULTS OF OPERATIONS

Our financial statements contain translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. The conversion of Malaysian Ringgit into U.S. dollars in the financial statements is based on the exchange rates set forth in the statistical release of The Federal Reserve, the central bank of the United States. Unless otherwise noted, all translations from Malaysian Ringgit to U.S. dollars and from U.S. dollars to Malaysian Ringgit for the fiscal year ending on December 31, 2025 (the "2025 Fiscal Year") were made at the noon buying rate of USD 1.00 = MYR 4.0560 on December 31, 2025, as published in the H.10 statistical release of the United States Federal Reserve Board).

Revenue

Revenue generated from our operations for the 2025 Fiscal Year and 2024 Fiscal Year was MYR 73,130,666 ($18,030,243) and MYR 40,860,882, respectively, representing an increase of MYR 32,269,784, or approximately 79.0%. Our revenue is primarily derived from offering CEA vertical farm solutions to clients and the sale of fresh produce cultivated from our CEA vertical farms. During the 2025 Fiscal Year, all revenue was generated from independent third parties, as revenue from related parties decreased from MYR 1,433,016 in the 2024 Fiscal Year to Nil in the 2025 Fiscal Year.

Revenue from offering farm solutions increased by MYR 3,573,376, or 17.2%, from MYR 20,834,674 in the 2024 Fiscal Year to MYR 24,408,050 ($6,017,764) in the 2025 Fiscal Year. In the 2024 Fiscal Year, farm solutions revenue comprised design services of MYR 17,434,500, construction services of MYR 3,400,000, and management fees of MYR 174. In the 2025 Fiscal Year, farm solutions revenue was derived entirely from construction services of MYR 24,408,050 ($6,017,764), representing an increase of MYR 21,008,050 from construction services in the 2024 Fiscal Year. Approximately 93.6% of construction service revenue (MYR 22,845,935, representing 31.2% of total revenue was derived from a recurring customer (Customer A, Note 17(c)), with the quotation provided in May 2025, the letter of award received in August 2025, and construction services completed in December 2025 with revenue recognized in the same fiscal year. This was a one-off project and future construction service revenue will depend on market opportunities, technical capabilities, and contract negotiations.

Revenue from the sale of fresh produce increased by MYR 28,696,408, or 143.3%, from MYR 20,026,208 in the 2024 Fiscal Year to MYR 48,722,616 ($12,012,479) in the 2025 Fiscal Year. This increase was due to the increased sales volume of vegetables to wholesale customers in the 2025 Fiscal Year. There was no material change in the baseline selling price of fresh produce compared to the 2024 Fiscal Year; however, we expanded the variety of fresh produce sold, including premium produce varieties that command higher unit selling prices. Fresh produce was sourced from third-party suppliers as well as related party contract farms (Agroz Vertical Farms Sdn. Bhd. and Agroz Ventures Sdn. Bhd., Note 21). The increase in 2025 Fiscal Year sales was driven by higher order volumes from both existing and newly acquired commercial customers. Per Note 17(c), sales of fresh produce in the 2025 Fiscal Year exhibited significant customer concentration, with Customer A contributing 27.6% of total revenue, Customer I contributing 22.5%, and Customer G contributing 12.9%. Customer A represented an aggregate of 58.8% of our total revenue across both construction services (31.2%) and fresh produce sales (27.6%) in the 2025 Fiscal Year. Future vegetable sales will depend on market demand, production yields, supply chain stability, and prevailing macroeconomic conditions.

Revenue generated from our operations for the 2024 Fiscal Year and 2023 Fiscal Year was MYR 40,860,882 and MYR 18,471,272 respectively. Our revenue is primarily derived from offering CEA vertical farm solutions to clients, especially for design service. Revenue generated for the 2024 Fiscal Year was MYR 40,860,882, representing an increase of 121.2% from revenue in the 2023 Fiscal Year. This increase in revenue was due to providing design services, which increased from MYR 8,412,500 to MYR 17,434,500. The entire amount of design service revenue was derived from a new customer, with the quotation requested in July 2024 and the letter of award received in September 2024. The design service was completed in December 2024, and the revenue was recognized in the same fiscal year. This was a one-off transaction and any future design service revenue will depend on the availability of opportunities, expertise, and successful negotiations. Vegetable sales for the 2024 Fiscal Year increased from MYR 2,058,772 to MYR 20,026,208, representing an increase of MYR 17,967,436. This increase was due to the increased sales of vegetables to wholesale customers in the 2024 Fiscal Year. In the 2024 Fiscal Year, 64.8% of vegetable sales were recorded in last quarter (Q4), with 58.4% of sales in Q4 of 2024 contributed by new customers. There was no change in the selling price of fresh produce compared to other fiscal quarters in 2024. However, we expanded the variety of fresh produce, including items that command higher prices. Vegetables were sourced from both third-party suppliers and related parties. The increase in Q4 2024 sales was driven by an increase in orders from existing and new customers. Future vegetable sales will depend on market demand, which is influenced by factors such as weather conditions, natural disasters, and broader economic trends.

Costs of revenue

Our costs of revenue include costs incurred directly from CEA vertical farm construction, employee wages and benefits, depreciation and amortization of software, farms and machinery, consulting fees and vegetable costs, as well as costs related to CEA vertical farm operations, such as seed and fertilizer expenses, utilities and packaging fees. Total costs of revenue increased by MYR 25,200,167, or 96.8%, from MYR 26,045,710 in the 2024 Fiscal Year to MYR 51,245,877 ($12,634,585) in the 2025 Fiscal Year. For the 2025 Fiscal Year, the total costs of revenue comprised primarily MYR 12,498,750 ($3,081,546) in construction costs and MYR 37,984,989 ($9,365,135) in vegetable costs, alongside depreciation and amortization of MYR 458,730 ($113,099), planting related costs of MYR 226,003 ($55,721), and wages and benefits of MYR 77,405 ($19,084).

Construction costs increased significantly from MYR 2,170,000 in the 2024 Fiscal Year to MYR 12,498,750 ($3,081,546) in the 2025 Fiscal Year to execute and deliver the large-scale construction service project for Customer A, which required extensive engagement of external contractors and engineering specialists. Gross profit margin for offering farm solutions decreased from 57.6% in the 2024 Fiscal Year (reflecting high-margin design services) to 48.8% in the 2025 Fiscal Year, as the 2025 revenue consisted entirely of construction services which carry relatively lower margins than design consultancy.

Vegetable costs increased by MYR 21,146,430, or 125.6%, from MYR 16,838,559 in the 2024 Fiscal Year to MYR 37,984,989 ($9,365,135) in the 2025 Fiscal Year, directly driven by higher procurement volumes of fresh produce to fulfill expanding commercial wholesale orders. Direct gross profit margin for fresh produce sales (calculated as fresh produce revenue less direct vegetable costs) improved from 15.9% (or 14.1% after allocating planting related costs, depreciation, and farm labor) in the 2024 Fiscal Year to 22.0% (or 20.5% comprehensively) in the 2025 Fiscal Year, primarily reflecting economies of scale in procurement and the introduction of higher-margin produce varieties.

Our overall gross profit increased by MYR 7,069,617, or 47.7%, from MYR 14,815,172 in the 2024 Fiscal Year to MYR 21,884,789 ($5,395,658) in the 2025 Fiscal Year. However, overall gross profit margin decreased from 36.3% in the 2024 Fiscal Year to 29.9% in the 2025 Fiscal Year. This margin reduction was primarily attributable to: (i) a strategic shift in revenue mix, where lower-margin fresh produce sales expanded from 49.0% of total revenue in the 2024 Fiscal Year to 66.6% in the 2025 Fiscal Year; and (ii) the decrease in farm solutions margin from 57.6% to 48.8% due to the transition from design services to construction execution.

Our costs of revenue increased from MYR 10,207,774 in the 2023 Fiscal Year to MYR 26,045,710 in the 2024 Fiscal Year. For the 2024 Fiscal Year, the total costs of revenue comprising MYR 6,667,000 in consulting fees and MYR 16,838,559 in vegetable costs. Higher consulting fees in the 2024 Fiscal Year to complete a design service project for a customer, which required the engagement of external experts. Despite the increase in consulting fees, the gross profit margin for farm solutions improved from 48.9% in 2023 Fiscal Year to 57.6% in 2024 Fiscal Year. Vegetable costs rose significantly, from MYR 934,681 in the 2023 Fiscal Year to MYR 16,838,559 in the 2024 Fiscal Year. The reason for this increase was due to additional purchases of fresh produce incurred in to fulfill orders from new and existing customers for the sales of fresh produce during the 2024 Fiscal Year. Although vegetable costs increased, the gross profit margin for sales of fresh produce improved from 10.8% in 2023 Fiscal Year to 14.1% in 2024 Fiscal Year. However, the total gross profit margin declined from 44.7% in 2023 Fiscal Year to 36.3% in 2024 Fiscal Year, which was primarily due to the increase in sales of fresh produce that had a dilutive effect of the overall gross profit margin. The proportion of revenue from fresh produce, which yields a lower margin compared to farm solutions, increased from 11.2% in 2023 Fiscal Year to 49.0% in 2024 Fiscal Year.

Selling and promotion expenses

The following table sets forth a breakdown of our selling and promotion expenses for the fiscal years indicated:

The Group's selling and promotion expenses are derived from marketing fees and entertainment. We incurred marketing and advertising expenses on popular media platforms, with the intention of boosting our media presence and brand awareness and generating more visitors (and potentially customers) to our website.

Selling and promotion expenses increased by MYR 1,700,847, or 815.3%, from MYR 208,618 in the 2024 Fiscal Year to MYR 1,909,465 ($470,775) in the 2025 Fiscal Year. Marketing fees for the 2025 Fiscal Year were MYR 1,909,465 ($470,775), compared to MYR 186,043 in the 2024 Fiscal Year, representing an increase of MYR 1,723,422. This substantial increase was consistent with our aggressive commercial expansion and branding campaigns to support the 143.3% growth in fresh produce sales, increase retail and wholesale brand equity, and expand market penetration across Malaysia.

Marketing fees for the 2024 Fiscal Year MYR 186,043 were significantly lower than marketing expenses for the 2023 Fiscal Year MYR 381,224, due to the Group's one-off engagement of an agency to develop the Group's marketing solutions in the 2023 Fiscal Year to build brand awareness but does not recur in 2024 Fiscal Year.

General and administrative expenses

The following table sets forth a breakdown of our administrative expenses for the fiscal years indicated:

Director fee

During the 2025 and 2024 Fiscal Years, Gerard Kim Meng Lim, the director of Agroz, who is also one of its shareholders, was entitled to an annual director's fee of MYR 1,300,000 ($350,513) and MYR 1,000,000, respectively for his services to Agroz.

During the 2024 and 2023 Fiscal Years, Gerard Kim Meng Lim, the director of Agroz, who is also one of its shareholders, was entitled to an annual director's fee of MYR 1,000,000 and MYR 120,000, respectively for his services to Agroz. During the 2023 Fiscal Year, Mr. Lim waived payment for this director's fee and was accordingly treated as a contribution by a shareholder.

Professional fees

Our legal and professional fees decreased by MYR 996,762, or 33.7%, from MYR 2,955,710 in the 2024 Fiscal Year to MYR 1,958,948 ($482,975) in the 2025 Fiscal Year. This decrease was primarily due to the completion of the Company's initial public offering in October 2025, with eligible share issuance expenses of MYR 5,791,292 capitalized against additional paid-in capital in shareholders' equity rather than expensed through profit or loss.

Our legal and professional fees for the 2023 Fiscal Year totaled MYR 503,556, which increased to MYR 2,955,710 in the 2024 Fiscal Year. This increase is mainly attributed to audit fees and other professional fees in preparation for our prospective IPO incurred in the 2024 Fiscal Year.

Wages and benefits

Wages and benefits mainly included staff salaries, Employees Provident Fund, Social Security Organization, Employment Insurance System and allowances. Wages and benefits in general and administrative expenses increased by MYR 679,200, or 60.2%, from MYR 1,128,559 in the 2024 Fiscal Year to MYR 1,807,759 ($445,700) in the 2025 Fiscal Year, primarily due to expanding our administrative and operational headcount from 14 staff in 2024 to 26 staff in the 2025 Fiscal Year

Wages and benefits increased by MYR 812,797 from MYR 315,762 in the 2023 Fiscal Year to MYR 1,128,559 in the 2024 Fiscal Year due to our recruitment of new staff increase from 9 staffs to 14 staffs in the 2024 Fiscal Year.

Depreciation and amortization

Depreciation and amortization charges included in general and administrative expenses increased by MYR 75,680, or 13.0%, from MYR 583,049 in the 2024 Fiscal Year to MYR 658,729 ($162,409) in the 2025 Fiscal Year. These charges mainly comprise depreciation on property, plant and equipment (computer equipment, motor vehicles, renovation) and amortization of intangible assets (ERP software and websites), alongside depreciation of right-of-use office assets. The increase was primarily driven by the full-year amortization of capitalized software and depreciation of motor vehicles acquired and financed via bank borrowings during the year.

Depreciation and amortization charges for the 2024 Fiscal Year in general and administrative expenses amounted to MYR 583,049. These charges mainly include depreciation charges on Agroz Group's fixed assets, such as furniture and fittings, fire system, computer and equipment, motor vehicles, computer software, websites and renovation. For the 2024 Fiscal Year, our depreciation and amortization charges were MYR 583,049, representing an increase of MYR 308,504 from the 2023 Fiscal Year. This significant increase was due to the Group's newly leased office premises for operation.

Office expenses

Office expenses increased by MYR 269,472, or 98.1%, from MYR 274,610 in the 2024 Fiscal Year to MYR 544,082 ($134,142) in the 2025 Fiscal Year. This increase was mainly attributed to higher administrative expenses, utility costs, investor relations expenses, and operational overhead associated with supporting a larger corporate structure following our public listing.

Penalties

Penalties recognized within general and administrative expenses for the 2025 Fiscal Year totaled MYR 25,701 ($6,337) (2024: Nil), arising from penalties imposed by lessors for the late payments.

Other income

Total other income increased by MYR 45,915, or 26.5%, from MYR 173,293 in the 2024 Fiscal Year to MYR 219,208 ($54,045) in the 2025 Fiscal Year. This increase was primarily attributable to increase in sundry other income to MYR 301,987 ($74,454) and a reduction in net foreign exchange losses from MYR 121,774 in 2024 to MYR 82,786 ($20,411) in 2025, partially offset by a decrease in bank interest income to MYR 7 ($2).

Expected credit losses on trade receivables

The following table sets forth a breakdown of our expected credit losses ("ECL") on trade receivables for the years indicated:

Loss allowances for trade receivables are always measured in an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. ECL for trade receivables decreased by MYR 374,289, or 56.6%, from MYR 661,263 in the 2024 Fiscal Year to MYR 286,974 ($70,753) in the 2025 Fiscal Year. This net decrease was primarily driven by a reversal of allowances of MYR 412,828 ($101,782) on related party receivables following the full settlement of all related party trade receivables in the 2025 Fiscal Year. This reversal was partially offset by an increase in loss allowances on third-party industrial business customers of MYR 700,718 ($172,761) (compared to increase of MYR 286,939 in the 2024 Fiscal Year), reflecting the substantial growth in gross receivables from industrial customers and an increase in receivables aged over six months.

For the 2023 Fiscal Year, ECL for trade receivables amounted to MYR 66,915. ECL for trade receivables increased to MYR 661,263 ($147,950) in the 2024 Fiscal Year due to the increase in trade receivables' credit risk.

Finance costs

The following table sets forth a breakdown of our financial expenses for the years indicated:

Our finance costs include bank charges and interest charges.

Finance costs decreased by MYR 573,704, or 34.3%, from MYR 1,673,335 in the 2024 Fiscal Year to MYR 1,099,631 ($271,111) in the 2025 Fiscal Year. This decrease was primarily attributable to a reduction in interest on RCPS of MYR 555,362, from MYR 1,384,065 in 2024 to MYR 828,703 ($204,314) in the 2025 Fiscal Year, resulting from the conversion of 180,000 AI RCPS into ordinary shares, redemption of 40,000 AI RCPS, and maturity of certain subscriptions. In addition, interest on the related party loan from HWG Cash decreased from MYR 27,260 in 2024 to MYR 22,717 ($5,601) in the 2025 Fiscal Year as the loan principal was fully repaid on October 30, 2025 (Notes 10(a) and 20). Lease interest decreased slightly to MYR 231,431 ($57,059), while interest on bank borrowings increased to MYR 9,424 ($2,323) following additional bank borrowings incurred in late 2025 Fiscal Year.

For the 2023 Fiscal Year, our finance costs amounted to MYR 505,826, mainly attributable to the interest paid to RCPS holders of MYR 360,407. Finance costs increased from MYR 505,826 for the 2023 Fiscal Year to MYR 1,673,335 for the 2024 Fiscal Year. This significant increase was due to an increase in shareholder subscriptions for RCPS.

Loss on redeemable convertible preference share redemption

For the 2023 Fiscal Year, 3,000,000 shares of Agroz Group RCPS ("AG RCPS") were fully redeemed along with the related unpaid interests by issuing 336,366 shares of Agroz Inc. RCPS ("AI RCPS") which had a fair value MYR 3,882,500. On December 1, 2023, the redemption date of the AG RCPS, the net book value of AG RCPS along with the related unpaid dividends was MYR 3,177,600. The loss arising from the redemption of the RCPS redemption amounted to MYR 704,900 was incurred from the difference between fair value of the AI RCPS and the net book value of AG RCPS in the 2023 Fiscal Year. No such loss was incurred in the 2024 or 2025 Fiscal Years.

Income tax expenses - Malaysia profits tax

For the 2025 Fiscal Year, 2024 Fiscal Year and the 2023 Fiscal Year, the tax rate is 24% for companies incorporated in Malaysia with paid-in capital of MYR 2.5 million or more. The Company is subject to income taxes on entities based on profit arising in or derived from the jurisdiction in which the Company and its subsidiaries are domiciled or operate in.

Total income tax expenses increased by MYR 2,574,133, or 90.8%, from MYR 2,833,617 in the 2024 Fiscal Year to MYR 5,407,750 ($1,333,272) in the 2025 Fiscal Year. For the 2025 Fiscal Year, Agroz Group incurred current income tax expenses of MYR 3,960,142 ($976,366) and under-provision of taxes in prior years of MYR 1,468,846 ($362,142), offset by deferred tax credit of MYR 21,238 ($5,236).

For the 2024 Fiscal Year and the 2023 Fiscal Year, the tax rate is 24% for companies incorporated in Malaysia with paid-in capital of MYR 2.5 million or more. The Company is subject to income taxes on entities based on profit arising in or derived from the jurisdiction in which the Company and its subsidiaries are domiciled or operate in.

For the 2024 Fiscal Year, Agroz Group incur current income tax expenses amounted to MYR 2,637,694 and under provision of tax MYR 225,946 in prior years. There is a recognition of deferred tax asset amounting to MYR 30,023 in 2024 Fiscal Year. For the 2023 Fiscal Year, Agroz Group's income tax expenses amounted to MYR 1,355,882.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth our current assets, non-current assets, current liabilities, non-current liabilities and equity as of the dates indicated:

Trade receivables

Aging analysis of gross trade receivables, based on tax invoice dates, as of December 31, 2024 and 2025 are as follows:

Our trade receivables encompass amounts owed to us for offering CEA vertical farm solutions and selling fresh produce. All of our trade receivables are expected to be recovered within one year. We invoice our clients on a milestone basis following our service agreement or upon completion of transactions. Our trade receivable balance increased by MYR 31,975,411, or 88.0%, from MYR 36,316,854 as of December 31, 2024 to MYR 68,292,265 ($16,837,344) as of December 31, 2025. This increase was mainly due to higher outstanding balances from third parties for offering farm solutions of MYR 23,039,775 ($5,680,418) and fresh vegetable sales of MYR 46,283,324 ($11,411,076), whereas related party trade receivables of MYR 1,132,841 at December 31, 2024 were fully collected and settled during the 2025 Fiscal Year.

Importantly, our trade receivables aging profile experienced significant elongation: receivables aged more than 6 months but within 1 year increased from MYR 2,470,419 (6.7% of gross receivables) as of December 31, 2024 to MYR 26,409,471 ($6,511,211), or 38.1% of total gross receivables, as of December 31, 2025. Furthermore, per Note 14(a)(i), the Group has extreme customer credit concentration, with 99.78% (2024: 95.92%) of total gross trade receivables due from our five largest customers as of December 31, 2025. As of December 31, 2025, more than 92% of outstanding trade receivables as of the 2024 Fiscal Year-end had been collected. As of September 28, 2026, approximately 74% of outstanding trade receivables as of December 31, 2025 had been collected.

In determining the recoverability of a trade receivable, we consider any changes in the credit quality of the trade receivables from the date credit was initially granted up to the reporting date. Cumulative ECL allowance increased from MYR 743,860 as of December 31, 2024 to MYR 1,030,834 ($254,150) as of December 31, 2025, reflecting higher provisioning on third-party industrial customers commensurate with extended receivable aging. Management continues to monitor credit quality and believes the recognized provision is adequate.

Prepayments, deposits and other receivables

Total prepayments, deposits and other receivables increased by MYR 4,555,213, or 63.0%, from MYR 7,232,572 as of December 31, 2024 to MYR 11,787,785 ($2,906,258) as of December 31, 2025. This increase was primarily driven by prepayments for e-commerce website design, Enterprise Resource Planning (ERP) system and Robotic AI Platform, which grew from MYR 6,923,814 to MYR 11,458,527 ($2,825,081). Specifically, advance payments to Braiven Co., Ltd., a related party, for the development of a comprehensive Robotics AI Platform increased from MYR 5,517,306 to MYR 9,566,537 ($2,358,614), while prepayments to third-party vendors for e-commerce website design, ERP system and Robotic AI increased from MYR 1,406,508 to MYR 1,891,990 ($466,467). Rental and utility deposits remained unchanged at MYR 277,843 ($68,501), and current other receivables increased slightly to MYR 51,415 ($12,676).

Trade and other payables

Note:

All trade and other payables classified as current are expected to be settled within one year or are repayable on demand. Our trade payables increased by MYR 6,204,025, or 44.0%, from MYR 14,089,238 as of December 31, 2024 to MYR 20,293,263 ($5,003,269) as of December 31, 2025. This increase was mainly due to outstanding balances owed to construction service contractors of MYR 13,801,580 ($3,402,756) and vegetable suppliers of MYR 6,354,456 ($1,566,680), which remained undue as of December 31, 2025. Payables to construction contractors and vegetable suppliers represented approximately 68.0% and 31.3% of total trade payables, respectively. In terms of aging, 87.9% of trade payables were aged within 3 months, while payables aged over 1 year increased from MYR 56,278 to MYR 1,382,836 ($340,936).

Other payables

Other payables and accruals consisted of accrued operating expenses and sundry payables. Other payables and accruals increased by MYR 4,397,018, or 239.9%, from MYR 1,832,975 as of December 31, 2024 to MYR 6,229,993 ($1,535,994) as of December 31, 2025. This substantial increase was primarily due to the accrual of the full contractual consulting fee liability of MYR 4,057,000 ($1,000,247) owed to V Capital Consulting Limited ("VCCL") in connection with IPO advisory services, which is currently the subject of ongoing litigation as disclosed in Note 23(b) (with a corresponding deduction from additional paid-in capital). Wages payable decreased from MYR 200,235 in the 2024 Fiscal Year to MYR 21,529 ($5,308) in the 2025 Fiscal Year, mainly due to the advance payments made for salary and tax to Inland Revenue Board which resulting in an offsetting impact on the outstanding balance. Interest payable of RCPS decreased from MYR 1,072,266 in the 2024 Fiscal Year to MYR 530,365 ($130,761) in the 2025 Fiscal Year due to payment of RCPS interest in the 2025 Fiscal Year.

Going concern

Our primary source of liquidity has been operational sources of cash, financing from third-party investors, related parties and a bank loan. As of December 31, 2024, we had cash balance amounted to MYR 390,500. As of December 31, 2024, the Group recognized a liability of MYR 9,590,370 in respect of redeemable convertible preference shares, where the shareholders have the rights to request the Company to redeem all of the redeemable convertible preference shares upon maturity date. The aggregate redemption amount for all redeemable preference shares by December 31, 2024 is MYR 10,055,481.

For the 2025 Fiscal Year, we incurred negative operating cash flows of MYR 6,284,550 ($1,549,445). As of December 31, 2025, the Group had cash of MYR 1,478,091 ($364,421). In addition, as of December 31, 2025, we had current liabilities in respect of redeemable convertible preference shares of MYR 6,583,486 ($1,623,147), where holders possess mandatory redemption rights within one year upon maturity, amounts due to related parties of MYR 6,056,741 ($1,493,279), total bank borrowings of MYR 841,815 ($207,548) (of which MYR 95,008 ($23,424) is due within one year). Furthermore, as of December 31, 2025, we had significant remaining contractual capital commitments of MYR 11,995,191 ($2,957,394), primarily arising from executed purchase contracts for E-commerce website design, system integration, and software and AI platform development signed with technology vendors (including third-party suppliers and Braiven Co., Ltd., a related party).

In light of the foregoing circumstances, we have concluded that there is substantial doubt about our ability to continue as a going concern within one year from the date that our consolidated financial statements for the 2025 Fiscal Year were issued. To meet the cash requirements for the next 12 months from the issuance date of the audit report, we plan to undertake a combination of below remediation plans:

There can be no assurance that we will be successful in achieving our strategic plan, that our future capital raises will be sufficient to support our ongoing operations, or that any additional financing will be available in a timely manner or with acceptable terms, if at all. If we are unable to raise sufficient financing or events or circumstances occur such that we do not meet our strategic plans, it would have a material adverse effect on our financial position results of operations cash flows and ability to achieve our intended business objectives. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CASH FLOWS STATEMENTS

The following table sets forth a summary of our cash flows for the year indicated.

Operating activities

For the 2025 Fiscal Year, net cash used in operating activities was MYR 6,284,550 ($1,549,445), which primarily reflected our profit before taxation of MYR 11,990,753 ($2,956,301), adjusted for non-cash items including: (i) finance costs of MYR 1,092,275 ($269,297), (ii) aggregate depreciation and amortization of MYR 1,117,459 ($275,508) (comprising depreciation of property, plant and equipment of MYR 136,963 ($33,768), depreciation of right-of-use assets of MYR 509,448 ($125,604), and amortization of intangible assets of MYR 471,048 ($116,136), (iii) credit loss provision on trade receivables of MYR 286,974 ($70,753), and (iv) gain on RCPS modification of MYR 37,092 ($9,145); and further adjusted for working capital changes including: (v) an increase in trade receivables of MYR 32,262,385 ($7,954,237), (vi) an increase in trade payables of MYR 6,204,025 ($1,529,592), (vii) an increase in other payables of MYR 3,825,975 ($943,288), (viii) a decrease in prepayments, deposits and other receivables of MYR 1,718,490 ($423,691), (ix) an increase in amounts due from related parties of MYR 738,690 ($182,123), (x) an increase in amounts due to related parties of MYR 588,883 ($145,188), and (xi) income tax paid of MYR 71,217 ($17,558).

For the 2024 Fiscal Year, net cash generated from operating activities was MYR 941,271, which primarily reflected our net income of MYR 6,345,785, as adjusted for (i) design service provided to a new customer and yet to be collected which amounted to MYR 17,434,500, (ii) sales of fresh produce to two new customers and yet to be collected which amounted to MYR 11,687,976, (iii) increase in trade payables which amounted to MYR 11,791,451, and (iv) increase in finance cost which amounted to MYR 1,668,770.

For the 2023 Fiscal Year, net cash used in operating activities was MYR 3,409,287, which primarily reflected our net income of MYR 5,110,267, as adjusted for (i) CEA vertical farm design services provided and yet to be collected which amounted to MYR 8,412,500, (ii) sales of CEA vertical farms and yet to be collected which amounted to MYR 4,000,000, (iii) decrease in development costs which amounted to MYR 2,151,248, and (iv) increase in trade payables which amounted to MYR 1,779,550.

Investing activities

For the 2025 Fiscal Year, net cash used in investing activities was MYR 5,577,937 ($1,375,231), consisting of: (i) payments for purchases of property, plant and equipment of MYR 1,043,134 ($257,183), primarily for motor vehicles and computer hardware; and (ii) payments for purchases of intangible assets totaling MYR 4,534,803 ($1,118,048), comprising payments to a related party (Braiven Co., Ltd.) of MYR 4,049,321 ($998,353) and payments to a third party of MYR 485,482 ($119,695) for ERP development.

For the 2024 Fiscal Year, net cash used in investing activities was MYR 6,820,628, primarily consisting of purchase of intangible assets, including investments into the development of the AI software platform, the e-commerce website, and the Agroz ERP system, all of which are anticipated to be integrated into the Agroz OS at a later stage, amounting to MYR 6,723,078.

For the 2023 Fiscal Year, net cash used in investing activities was MYR 2,628,150, which primarily consisting of purchase of intangible assets, including investments into the development of the AI software platform, the e-commerce website, and the Agroz ERP system, all of which are anticipated to be integrated into the Agroz OS at a later stage, amounting to MYR 1,706,670.

Financing activities

For the 2025 Fiscal Year, net cash generated from financing activities was MYR 12,687,796 ($3,128,155), primarily consisting of: (i) gross proceeds from the issuance of ordinary shares upon IPO of MYR 12,478,247 ($3,076,491), (ii) advances received from related parties of MYR 3,443,291 ($848,938), and (iii) proceeds from secured bank borrowings of MYR 808,000 ($199,211); partially offset by: (iv) repayment of a shareholder's loan of MYR 2,000,000 ($493,097), (v) total lease liability payments of MYR 629,137 ($155,113) (comprising principal payments of MYR 397,706 ($98,054) and interest payments of MYR 231,431 ($57,059)), (vi) cash interest paid on RCPS of MYR 978,267 ($241,190), (vii) cash redemption of AI RCPS of MYR 405,700 ($100,025), and (viii) total bank borrowings payments of MYR 28,638 ($7,060) (comprising principal payments of MYR 19,214 ($4,737) and interest payments of MYR 9,424 ($2,323).

For the 2024 Fiscal Year, net cash generated from financing activities was MYR 6,332,084, primarily consisting of proceeds from the issuance of AI RCPS totaling MYR 7,989,890 and payment of IPO related costs in the amount of MYR 621,400.

For the 2023 Fiscal Year, net cash generated from financing activities was MYR 6,072,688, primarily consisting of proceeds from the issuance of AI RCPS totaling MYR 3,609,483, proceeds from a related party's loan in the amount of MYR 1,363,000, cash advances received from a related party in the amount of MYR 1,042,409, proceeds from the issuance of Agroz Group's ordinary shares in the amount of MYR 820,000, advances received for AI RCPS totaling MYR 918,274 and payment of IPO related costs in the amount of MYR 1,147,842.

Capital expenditures

Our capital expenditure mainly arise from contracted purchase of property, plant and equipment and intangible assets. Our contractual capital expenditures commitment amounted to MYR 11,995,191 ($2,957,394) and MYR 13,313,961 in the 2025 and 2024 Fiscal Year. The capital expenditure mainly arising from certain purchase contracts of IT software such as E-commerce website design and Enterprise Resource Planning (ERP) system signed with suppliers and the developments of comprehensive Robotics AI Platform designed to facilitate the creation, deployment, and management of intelligent robotic systems. The majority of this contractual commitment is due within five years and upon the project progress.

Other than purchases of property, plant and equipment and intangible assets stated under investing activities, there were no other significant capital expenditures incurred in either the 2025 Fiscal Year or the 2024 Fiscal Year.

OFF-BALANCE SHEET ARRANGEMENTS

The Group currently has no off-balance sheet arrangements, including arrangements that would affect its liquidity, capital resources, market risk support, and credit risk support or other benefits.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Credit risk

Assets that potentially subject the Group to a significant concentration of credit risk primarily consist of cash, trade and other receivables, prepayments and amounts due from related parties. Cash balances are held with reputable financial institutions in Malaysia with high credit ratings, which management considers to carry minimal credit risk. For trade receivables, the Group is exposed to extreme customer credit concentration: as of December 31, 2025, 99.78% (2024: 95.92%) of total gross trade receivables were due from the Group's five largest debtors. Management evaluates debtor creditworthiness continuously using lifetime expected credit loss models under IFRS 9.

Cash holdings risk

The Group maintains the position that the cash held within its portfolio are exposed to minimal credit risk. This belief stems from the fact that these assets are managed by esteemed financial institutions located within the jurisdictions of operation of both Agroz Inc. and its subsidiaries. We believe that the rigorous standards and reputations of these institutions significantly mitigate potential risks associated with our cash holdings.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group does not account for any fixed rate financial instruments at fair value through profit or loss; therefore, fixed-rate borrowings do not expose the Group to fair value interest rate risk. Interest rates on the Group's lease contracts and bank borrowings are fixed. The Group's variable interest rate risk arises primarily from cash at bank. Per Note 14(b), if interest rates on bank deposits had been 50 basis points higher/lower with all other variables held constant, the Group's profit for the 2025 Fiscal Year would increase/decrease by approximately MYR 7,390 ($1,822) (2024: MYR 1,953). Accordingly, the Group's interest rate risk exposure was insignificant.

Foreign currency risk

Our exposure to foreign currency risk arose primarily through service income or expenses denominated in a currency other than the functional currency of the operations to which the currency relates. The currencies giving rise to this risk are primarily US$. As MYR converts to US$ the exchange rate becomes larger, but foreign exchange fluctuations remain stable, refer from these few years even the exchange rate will increase but its increase gradually at a stable rate.

CRITICAL ACCOUNTING ESTIMATES

Under International Financial Reporting Standards ("IFRS"), we are required to make estimates and assumptions in presentation and preparation of the financial statements for the 2024 Fiscal Year and 2025 Fiscal Year.

We prepared our consolidated financial statements in accordance with IFRS, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities; (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period; and (iii) the reported amounts of revenues and expenses during each reporting period. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions and our expectations regarding the future based on available information, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.

We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our results of operations or financials condition.

When reading our consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions. Our critical accounting policies and practices include the following: (i) expected credit loss of trade receivables; (ii) operating leases and right of use asset; (iii) redeemable convertible preference shares and (iv) revenue recognition. See Note 3 - Significant Accounting Policies to our consolidated financial statements for a disclosure of these accounting policies. We believe that provision for expected credit losses on trade receivables involve the most significant judgements in the preparation of our consolidated financial statements.

(i) Provision for expected credit losses on trade receivables

The Group estimates the loss allowances for trade receivables by assessing the ECLs in accordance IFRS 9 Financial Instruments. This requires the use of estimates and judgements due to the inherent uncertainty in estimating the expected loss rate over the life of trade receivables.

For trade receivables related to third-party retail outlet customers, the Group measures loss allowances at an amount equal to lifetime ECLs, which is calculated using a provision matrix. Expected loss rates are based on actual loss experience over the past 2 years. These rates are adjusted to reflect differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group's view of economic conditions over the expected lives of the receivables.

For trade receivables related to third-party industrial business customers and related parties, the Group measures loss allowances at an amount equal to lifetime ECLs, which is calculated using a behavioral scoring system taking into consideration current and historical credit worthiness, aging analysis, operating history in the relevant industry, reputation in the market and paid-in capital scale. Customers with positive behavior in all scoring areas, would be assigned a low-risk grading. Customers with positive behavior in most of the scoring areas, would be assigned a fair-risk grading. Customers with lesser positive behavior in scoring areas, would be assigned a substantial grading. The Group keeps assessing the expected credit loss of trade receivables during their expected lives.

Additionally, the Group makes specific bad debt provisions based on any specific knowledge the Group has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Group to use substantial judgment in assessing its collectability. After the reporting date and up to the date of this report, there have been no significant changes in macroeconomic indicators or customer credit risk that would materially impact the assumptions used in the ECL model. Management continues to monitor forward-looking indicators, including industry-specific developments and credit performance, to assess whether adjustments are required in future reporting periods.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 2.3 to our consolidated financial statements entitled 'Basis of preparation' for a discussion of recent accounting pronouncements. Effective January 1, 2025, the Group adopted Amendments to IAS 21 - Lack of Exchangeability, which had no material impact on the consolidated financial statements. Recently issued standards not yet effective include Amendments to IFRS 7 and IFRS 9 (effective January 1, 2026), IFRS 18 Presentation and Disclosure in Financial Statements (effective January 1, 2027), and IFRS 19 Subsidiaries without Public Accountability Disclosures (effective January 1, 2027). Management is currently evaluating the impact of these standards and anticipates that their initial adoption will not have a material effect on the Group's consolidated financial position or results of operations.